Amazon says Hachette should lower ebook prices, pay authors more

Oh yeah ... and a 30% cut for Amazon to seal the deal

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Amazon has laid out its reasons for wanting to drive the retail prices of ebooks downward, claiming that contrary to popular belief, the practice is actually beneficial for retailers, publishers, and authors alike.

"With an e-book, there's no printing, no over-printing, no need to forecast, no returns, no lost sales due to out-of-stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books," the Amazon Books team wrote in a forum post on Tuesday. "E-books can be and should be less expensive."

But given the giant e-tailer's recent tactics, not everyone is likely to believe the motive behind this latest missive is altruistic. Over the past few months, Amazon has been locked in a bitter conflict with US publishing giant Hachette, which has refused to lower the prices it charges for ebooks sold through Amazon's online store.

In response to Hachette's refusal to budge, Jeff Bezos & Co have reduced the inventory of Hachette print books carried in Amazon's warehouses and slashed the discounts it offers to customers, resulting in higher-priced books that often take weeks to ship to customers.

Little wonder there has been a sharp drop-off in sales of Hachette titles through Amazon, which ordinarily accounts for as much as 41 per cent of all new book purchases in the US market, including both print and digital. According to research from the Codex Group, Amazon commands a 67 per cent share of the ebook market and its share of online sales of print books is 64 per cent.

In the past, Amazon has said that it has tried unsuccessfully to negotiate a new deal with Hachette "on behalf of customers," while Hachette has said that nothing Amazon has proposed so far recognizes the "appropriate value" of publishers and authors.

But in its Tuesday forum post, Amazon spelled out exactly the revenue split it has proposed to Hachette, saying that the publisher of an ebook should get 35 per cent, the author should get 35 per cent, and Amazon itself should get 30 per cent.

That breakdown, however, would be contingent upon Hachette lowering its prices. While recognizing that "a small number of specialized titles" will always retail for higher-than-normal rates, Amazon wants Hachette to price the bulk of its ebook editions at $9.99 or less.

Its rationale? According to Amazon, lower ebook prices result in dramatically higher sales, which in turn can bring in bigger revenues, even if the unit price of each ebook sold is lower.

"We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99," Amazon said, adding that this increased revenue would benefit all parties concerned.

What's more, the e-tailer's spokespeople wrote, even if Amazon takes almost a third of the revenue from each ebook sold, Hachette has no right to complain.

"Is 30% reasonable? Yes. In fact, the 30% share of total revenue is what Hachette forced us to take in 2010 when they illegally colluded with their competitors to raise e-book prices," Amazon's forum post declares, referring to an earlier ebook pricing skirmish that Hachette ultimately settled out of court. "We had no problem with the 30% – we did have a big problem with the price increases."

As for that 30 per cent revenue cut that authors would receive under Amazon's plan, however, the e-tailer admitted that it was just a suggestion, and that authors would need to take it up with Hachette.

"While we believe 35% should go to the author and 35% to Hachette, the way this would actually work is that we would send 70% of the total revenue to Hachette, and they would decide how much to share with the author," Amazon said. "We believe Hachette is sharing too small a portion with the author today, but ultimately that is not our call." ®